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Mr. Tamim Bayoumi and Mr. Barry J. Eichengreen
This paper examines some popular explanations for the smooth operation of the pre-1914 gold standard. We find that the rapid adjustment of economies to underlying disturbances played an important role in stabilizing output and employment under the gold standard system, but no evidence that this success also reflected relatively small underlying disturbances. Finally, the paper also suggests an explanation for the evolution of the international monetary system based on growing nominal inertia over time.
Mr. Tamim Bayoumi and Mr. Barry J. Eichengreen

aggregate-supply-aggregate-demand framework to gold standard experience. Figure 1 The Aggregate Demand and Supply Model In addition, Neumann (1993) , has questioned whether the slopes of the aggregate supply and aggregate demand schedules associated with the variances of the estimated disturbances shift with changes in the exchange rate regime as predicted by the model. Fixed exchange rates like those of the gold standard should be associated with a relatively flat aggregate demand schedule, since domestic prices cannot diverge radically from prices in the rest

Mr. Selim A Elekdag and Mr. Dirk V Muir

affects associated with an increase in private capital and employment in the short run. In addition, public capital is presumed to depreciate at a slower pace than private capital (4 percent versus 10 percent depreciation per year), presenting another dimension whereby a higher stock of public capital durably raises output. A textbook aggregate supply-aggregate demand framework helps the contrast of the macroeconomic implications of public consumption with public investment, including in the case with implementation delays. As shown in Figure 4 , the long

Ms. Francesca Castellani and Mr. Xavier Debrun
We study the desirability of reforming fiscal institutions along with the delegation of monetary policy to an independent central
Ms. Francesca Castellani and Mr. Xavier Debrun

cases of centralized policymaking (i.e., commitment and discretion). In Section IV , we show the desirability of decentralized policymaking (central bank independence) and characterize the optimal monetary arrangement assuming discretionary fiscal policies. Section V defines fiscal institutions that address the failure to properly coordinate the policy mix under central bank independence. Section VI concludes. II. A S imple M odel We use a static aggregate supply—aggregate demand framework of a two-good small open economy. As usual, equations have a log

Mr. Robert P Flood

rise in short-term interest rates—and, hence, a flattening of the yield curve—and if inflation and real activity are negatively correlated, a fall in the term spread will predict slower future real activity. The proposition that high inflation is likely to be associated with a weakening of economic activity is supported by recourse to standard economic theory. In a simple aggregate supply-aggregate demand framework, for example, reductions in real output brought about by shifts in aggregate supply will be accompanied by a rise in prices and inflation as the economy

Mr. Selim A Elekdag and Mr. Dirk V Muir
Given the backdrop of pressing infrastructure needs, this paper argues that higher German public investment would not only stimulate domestic demand in the near term and reduce the current account surplus, but would also raise output over the longer-run as well as generate beneficial regional spillovers. While time-to-build delays can weaken the impact of the stimulus in the short-run, the expansionary effects of higher public investment are substantially strengthened with an accommodative monetary policy stance—as is typical during periods of economic slack. The current low-interest rate environment presents a window of opportunity to finance higher public investment at historically favorable rates.
Mr. Robert P Flood
This paper analyzes the issue of purchasing power parity using real effective exchange rate (REER) data for 20 industrial countries in the post-Bretton Woods period. The serial correlation-robust median-unbiased estimator yields a cross-country average of half-lives of deviations from parity of about eight years, with the REER of several countries displaying permanent deviations from parity. The paper analyzes integration of Africa into world trade. The high-yield spread as a predictor of real economic activity is also examined.